Glatfelter (NYSE: GLT) 2012 Third Quarter Earnings Conference Call October 31, 2012

Transcription

1 Glatfelter (NYSE: GLT) 2012 Third Quarter Earnings Conference Call October 31, 2012 Dante C. Parrini Chairman & Chief Executive Officer John P. Jacunski Senior Vice President & Chief Financial Officer

2 Forward-Looking Statements and Use of Non-GAAP Financial Measures Certain statements included in this presentation, which pertain to future financial and business matters, are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of The Company use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Any such statements are based on management s current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors that could cause future results to differ materially from those expressed in the forward-looking statements including, but not limited to: changes in industry, business, market, political and economic conditions in the U.S. and other countries in which it does business, demand for or pricing of its products, changes in tax legislation, governmental laws, regulations and policies, initiatives of regulatory authorities, technological changes and innovations, market growth rates, cost reduction initiatives, the cost, and successful design and construction, of the Composite Fibers capacity expansion project, the incurrence of unforeseen costs associated with the repair of equipment and clean-up due to the fire at the Scaer facility, our ability to supply this facility s customers, and the coverage provided by insurance for this incident and other factors. In light of these risks, uncertainties and other factors, the forward-looking matters discussed in this presentation may not occur and readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date of this presentation and Glatfelter undertakes no obligation, and does not intend, to update these forward-looking statements to reflect events or circumstances occurring after the date of this presentation. More information about these factors is contained in Glatfelter s filings with the U.S. Securities and Exchange Commission, which are available at During the course of this presentation, certain non-u.s. GAAP financial measures will be presented. A reconciliation of these measures to U.S. GAAP financial measures is included in the appendix of this presentation.

3 Q Highlights $0.28 Adjusted EPS (EPS Before Special Items) $0.44 $0.69 $1.00 Q Adjusted EPS increased 57% over prior year Net sales totaled $404 million, an increase of $1.4 million on a constant currency basis Adjusted Operating Income, excl. Pension, up 18% despite weakening of European markets and unfavorable FX translation Specialty Papers operating income increased by $4.4 million or 26% from Q Composite Fibers operating income higher by $0.2 million Advanced Airlaid Materials operating income improved by 10.5% Q3'11 Q3'12 Sep'11 YTD Sep'12 YTD Debt refinancing in late 2011 and share repurchase programs added $0.06 per share in the comparison Generated strong free cash flow of $25.8 million (excluding CFBU capacity expansion of $3.5 million and CBC conversion of $16.8 million) 3

4 Strong Growth in Adjusted EPS $1.47 $1.31 $1.15 $1.04 $1.00 $1.01 $0.81 $0.82 $0.74 $0.88 $0.55 $0.64 $0.64 $ /30/12 TTM Adjusted EPS Adjusted EPS excl. Pension GLT extended its track record of strong adjusted EPS growth into

5 Attractive Free Cash Flow Profile Free Cash Flow* Adjusted Free Cash Flow less Cash from Changes in Working Capital** Cash from Changes in Working Capital CBC/AFM Cash Composite Fibers Capacity Expansion avg. FCF of $2 million $ avg. FCF of $81 million, excluding CBC/AFM credits $137.6 $29.7 $47.1 $131.5 $54.9 $12.9 $75.8 $17.8 $10.1 $71.4 $(20.0) $21.0 $11.8 Reflects costs related to the Chillicothe and Lydney acquisitions, and the Neenah facility shutdown $(72.9) $1.0 $60.8 $63.7 $47.9 Free Cash Flow of $42.8 million, net of CBC/AFM credits, cash from working capital and CFBU capacity expansion $42.8 $(8.5) $(9.4) $(10.8) /30/12 TTM GLT continues to generate strong free cash flow to fund growth initiatives, dividend and share repurchases, and to maintain financial flexibility. Notes: Figures in millions; *Free Cash Flow based on operating cash flow less capital expenditures; **Adjusted Free Cash Flow = Free Cash Flow excluding CBC/AFM cash and CFBU capacity expansion investments 5

6 Improving Returns on Invested Capital 9.9% 8.5% 7.6% * 8.3% 8.6% 5.6% 6.3% 3.7% 4.3% /30/12 TTM Strong earnings growth, consistent free cash flow and disciplined capital deployment have significantly improved return on capital, which now exceeds GLT s cost of capital. Notes: * 2009 impacted by global recession and transition from net pension income ( ) to net pension expense ( ). Return on invested capital based on after-tax earnings from operations excluding unusual items. 6

7 Adjusted EPS Q vs. Q $0.04 $0.02 $0.02 $0.44 $0.07 $- $0.01 $0.28 Q3-11 SPBU CFBU AMBU Net Interest Net Pension Share Count Q3-12 On a GAAP basis, net income was $20.1 million or $0.46 per diluted share in Q compared to $13.0 million or $0.28 per diluted share in Q Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 7

8 Specialty Papers Q Highlights Dollars in Thousands Q Q Q Tons shipped 199, , ,531 $ in millions $17.0 $0.7 $1.9 $3.5 $0.1 ($1.8) $21.4 Net sales $225,410 $214,113 $232,620 Energy and related sales, net $2,840 $1,630 $1,868 Operating income $16,965 $4,244 $21,411 Operating margin 7.5% 2.0% 9.2% Q3-11 Operating Income Selling Price Volume & Mix RM and Energy Costs Operations Other Q3-12 Operating Income Shipments increased 2.5%, outperforming the broader UFS market, which was down 4.8% y/y Net sales increased 3.2% from higher shipments and higher average selling prices Shipments increased 9% in Forms, 8% in Engineered Products and 5% in Envelope Book Publishing and Carbonless shipments declined 4% and 5% respectively Selling prices were higher overall, generating $0.7 million Higher shipments and a favorable mix added $1.9 million to operating income during the quarter Input costs decreased by $3.5 million, largely driven by lower purchased pulp prices Net margin from power and renewable energy credit sales declined $1.0 million due to lower prices 8

9 Composite Fibers Q Highlights Dollars in Thousands Q Q Q $ in millions $10.1 $(0.5) $(0.2) $1.8 $0.1 $(1.0) $10.3 Tons shipped 24,105 22,975 23,532 Net sales $124,852 $108,625 $110,846 Operating income $10,057 $7,916 $10,293 Operating margin 8.1% 7.3% 9.3% Q3-11 Operating Income Selling Price Volume & Mix RM and Operations & Energy Costs Other FX Q3-12 Operating Income Net sales were down 3.9% y/y, on a constant currency basis Shipping volumes declined 2% Soft market conditions in Europe Lower shipments of coffee products driven by customer inventory adjustments Capacity expansion project progressing with start-up expected in Q Lower selling prices in Composite Laminates and Metalized Products, negatively impacted results by $0.5 million Input costs decreased by $1.8 million, mostly driven by lower purchased pulp and energy prices Foreign currency translation negatively impacted results by $1.0 million Fire in October 2012 at mill in Scaer, France, to impact Q4 results Covered by insurance, subject to $0.5 million deductible 9

10 Advanced Airlaid Materials Q Highlights Dollars in Thousands Q Q Q $ in millions $2.7 $0.4 $(1.3) Tons shipped 23,052 22,730 22,809 $4.1 $(1.1) $4.6 Net sales $66,232 $61,955 $60,888 $(0.2) Operating income $4,133 $4,614 $4,569 Operating margin 6.2% 7.4% 7.5% Q3-11 Operating Income Selling Price Volume & Mix RM and Energy Costs Operations & Other FX Q3-12 Operating Income Net sales decreased 1.5% y/y, on a constant currency basis Shipping volume was down 1% over Q3 2011, with decline in feminine hygiene in Europe largely offset by increased shipments of specialty wipes Approximately 80% of revenue subject to raw material cost pass-through arrangements Raw material and energy costs declined $2.7 million driven by fluff pulp Selling prices declined $1.1 million, with select price increases somewhat offsetting the pass-through Foreign currency translation negatively impacted results by $1.3 million Operating margin improved to 7.5% and EBITDA margin improved to 11.0%; best since acquisition in

11 Q Other Financial Highlights Pension expense totaled $2.9 million in Q and $4.1 million in Q Q includes a $2.0 million one-time settlement charge Company s qualified plan remains overfunded No cash contributions expected for the foreseeable future Interest expense declined $2.3 million in the year-over-year comparison due to debt refinancing in late 2011 Effective tax rate on adjusted earnings was 24.9% in Q3 2012, compared to 26.2% in Q Unusual Item Completed sale of 979 acres of Pennsylvania timberlands in Q3 2012, realizing a $1.5 million pre-tax gain. Aggregate cash proceeds totaled $1.5 million after closing costs (excluded from adjusted earnings) 11

12 Free Cash Flow $16.1 $25.8 Adjusted Free Cash Flow $18.7 $23.6 Q3'11 Q3'12 YTD'11 YTD'12 (in millions) Q3 11 Q3 12 Sep 11 YTD Sep 12 YTD Cash Flow from Operations $32.8 $19.9 $81.1 $48.5 Less: Capital Expenditures (16.8) (14.4) (44.6) (45.0) Free Cash Flow $16.1 $5.5 $36.5 $3.4 Add back: CFBU cap. exp Exclude: CBC/AFM Credit 16.8 (17.8) 9.4 Adjusted Free Cash Flow $16.1 $25.8 $18.7 $23.6 Strong adjusted free cash flow of $25.8 million in Q Cash tax use of $16.8 million from cellulosic biofuel conversion in Q YTD Capital expenditures in 2012 were $0.4 million higher than in 2011 Spent $10.8 million on the CFBU capacity expansion project in 2012 YTD, with full-year estimate of $29 million; start-up expected in Q2 2013; total project cost of $50 million 2012 capital expenditures are estimated at $85 million Higher use of cash from working capital in 2012 YTD relative to a year ago, due to seasonality in working capital flows and rebuilding of inventory positions (in millions) Q3 11 Q3 12 YTD 11 YTD 12 Working Capital Impact $(1.7) $(13.0) $(18.5) $(37.1) Notes: The sum of individual amounts set forth above may not agree to the column totals due to rounding. Working capital is defined as accounts receivable plus inventories less accounts payable. 12

13 Strong Balance Sheet (in millions) 31-Dec Dec Sep-12 Cash $95.8 $38.3 $28.3 Short-Term Debt /8% Notes, due May /8% Notes, due May 2016, net of original issue discount 96.5 Term Loan, due January Revolving credit agreement Total Debt Collateralized Debt (36.7) Net Debt $200.5 $188.7 $190.7 Shareholder s Equity $552.4 $490.4 $546.0 TTM Adj. EBITDA (excl. Pension) $150.9 $164.0 $177.1 Leverage* 1.3x 1.2x 1.1x Cash available under bank facility $218.3 $318.4 $325.8 Amended revolving credit facility in November 2011 Redeemed 7⅛% $100 million Notes in December 2011 Interest expense of $4.2 million declined by $2.3 million in Q vs. Q Completed private placement offering of $250 million of 5.375% Senior Notes due 2020 (Q event) Redeemed 7⅛% $200 million Notes in October, 2012 (Q event) Glatfelter has ample liquidity to continue to fund growth initiatives and strategic investments as well as dividends Notes: *The above calculation is not intended to be used for purposes of calculating debt covenant compliance. The sum of individual amounts set forth above may not agree to the column totals due to rounding. 13

14 Q Outlook Specialty Papers Shipping volume in Q is expected to decline slightly compared to Q3 2012, due to normal seasonality Selling prices are expected to be slightly lower and input costs are expected to be in line with Q Composite Fibers Shipping volume in Q is expected to be 5% lower than in Q3 2012, due to normal seasonality and soft economic conditions in Europe Selling prices and input costs for Q are expected to be in-line with Q As a result of the October 2012 fire sustained at its Scaer, France facility, the Company expects to incur costs approximating $4 million to $6 million related to repairs, cleaning and downtime due to the incident. Although the fire is expected to be covered by insurance, subject to a deductible of $0.5 million, the timing of recording costs versus recognition of the insurance recovery is likely to be different under applicable accounting standards Advanced Airlaid Materials Shipping volume in Q is expected to be slightly lower than in Q3 2012, due to normal seasonality Selling prices and input costs are expected to be slightly lower than in Q driven by lower input costs Other In connection with the previously announced refinancing of $200 million of its 7⅛% senior notes, the Company expects to record an after-tax charge of approximately $5 million related to an early redemption premium and the write-off of unamortized deferred financing costs. The Company replaced these notes with the issuance of $250 million of 5.375% senior notes due October 2020 Company expects to take its normal seasonal downtime in Q

15 Appendix

16 Financial Highlights Net Sales (in millions) Adj. EBITDA / Margin % (in millions) 8.9% 9.7% 10.0% 10.7% 10.4% 10.2% 11.2% $986 $1,148 $1,264 $1,184 $1,455 $1,603 $1,578 $88.4 $111.7 $125.5 $126.2 $150.9 $164.0 $ /30/12 TTM /30/12 TTM Adj. EBITDA Adj. EBITDA % of Net Sales GLT net sales exceeded $1.6 billion in EBITDA continues to grow, driven by organic growth, execution of continuous improvement initiatives and strategic acquisitions. 16

17 Financial Overview (in millions) Q3 11 Q3 12 Net Sales $416.5 $404.4 Adjusted Operating Income, excl. Pension $27.7 $32.7 Adjusted EBITDA, excl. Pension $45.2 $49.8 Free Cash Flow $16.1 $5.5 Adjusted Free Cash Flow $16.1 $25.8 Net Debt $188.7 $190.7 Cash Balance $38.3 $28.3 Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 17

18 Details of Other and Unallocated The following sets forth details of Other and Unallocated amounts presented in the Company s Business Unit Financial Information included in the earnings release. (in millions) Q3 11 Q3 12 Gains on dispositions of plant, equipment and timberlands Acquisition and integration expenses $ 0.7 $1.5 Net pension expense (4.1) (2.9) Other costs* (3.6) (3.6) Operating income (loss) ($7.0) ($5.0) Notes: * Other costs are comprised primarily of legal fees, professional services fees and incentive compensation. The sum of individual amounts set forth above may not agree to the column totals due to rounding. 18

19 Pension Plan Remains Overfunded (in millions) Estimate Service and interest costs $31.4 $32.0 $33.4 $34.3 $34.2 Expected return on plan assets (50.1) (39.8) (40.3) (41.8) (42.2) Amortization of prior service and actuarial costs One-time charge 2.0 Pension (Income) / Expense $(16.1) $7.0 $9.2 $10.4 $11.5 Funded status $14.3 $79.6 $92.1 $28.0 N/A Cash contributions* $0 $0 $0 $0 $0 Discount Rate for Expense 6.25% 6.25% 6.10% 5.80% 5.09% Return on Asset Assumption 8.5% 8.5% 8.5% 8.5% 8.5% * Qualified plans only Qualified plan remains overfunded. No cash contribution required in 2012 or expected for the foreseeable future. 19

20 Share Repurchase Programs Board of directors authorized a new two-year, $25 million share buyback program in May 2012 Shares in thousands Q2 12 Q3 12 # of shares repurchased Avg. price/share $15.13 $15.50 Total purchase price ($ millions) $2.6 $0.2 Impact on diluted shares outstanding Completed the $50 million share repurchase program in January 2012 Repurchased 3.6 million shares at an average share price of $13.94 Share repurchase programs increased EPS by $0.02 during Q compared to Q

21 Adjusted EPS (EPS Before Special Items) $0.43 $0.44 $0.24 $0.33 $0.29 $0.36 $0.31 $0.34 $0.32 $0.28 $0.19 $0.02 $0.07 $0.12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $(0.22) Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 21

22 Adjusted EPS excluding Pension (EPS Before Special Items and Net Pension Expenses) $0.47 $0.48 $0.26 $0.32 $0.35 $0.22 $0.39 $0.34 $0.37 $0.34 $0.36 $0.16 $0.05 $0.09 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $(0.19) Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 22

23 Specialty Papers Operating Income $ in millions Includes onetime items totaling $8.2 $23.1 $20.9 $23.0 $22.2 $23.7 $21.4 $18.4 $15.9 $16.8 $17.0 $18.2 $2.7 $4.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $(0.1) $(6.4)

24 Composite Fibers Operating Income $ in millions $12.4 $5.5 $5.8 $7.1 $6.3 $8.9 $9.7 $8.0 $9.3 $10.1 $9.1 $10.9 $7.9 $10.3 $3.6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

25 Advanced Airlaid Materials Operating Income $ in millions $4.6 $4.6 $3.7 $4.1 $3.8 $3.8 $1.9 $1.7 $1.2 $1.1 $0.2 Q1* Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Note: * Represents period from February 12 to March 31,

26 Reconciliation of Non-GAAP Adjusted Earnings Per Share Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Net income (loss) $0.25 $0.43 $1.00 $1.00 ($0.01) $0.00 $0.85 $0.33 $0.38 $0.05 $0.28 $ 0.22 $0.43 $0.31 $0.46 Charge for workforce efficiencies $ Cellulosic bio-fuel and alternative fuel mixture credits - (0.67) (0.72) (0.70) - - (0.50) (0.10) Gains from sales of timberland and related transaction costs (0.01) (0.00) (0.02) (0.04) - (0.01) (0.05) - (0.08) (0.02) Acquisition and integration related costs Foreign currency hedge on acquisition price (0.01) Debt redemption costs Adjusted earnings (loss) $ 0.24 $ (0.22) $ 0.29 $ 0.33 $ 0.19 $ 0.02 $ 0.36 $ 0.31 $ 0.34 $ 0.07 $ 0.28 $ 0.32 $ 0.43 $ 0.12 $ 0.44 Pension Impact on Adjusted EPS $ 0.02 $ 0.03 $ 0.03 $ 0.02 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.03 $ 0.02 $ 0.06 $ 0.03 $ 0.04 $ 0.04 $ 0.04 Adjusted earnings (loss) excl. pension $ 0.26 $ (0.19) $ 0.32 $ 0.35 $ 0.22 $ 0.05 $ 0.39 $ 0.34 $ 0.37 $ 0.09 $ 0.34 $ 0.36 $ 0.47 $ 0.16 $ 0.48 Note: The sum of individual per share amounts set forth above may not agree to adjusted income per share due to rounding. 26

27 Reconciliation of Non-GAAP Measures Adjusted EBITDA, Excluding Pension Adjusted Operating Income, Excluding Pension In millions Q Q Income before Income Taxes $ 17.7 $ 27.2 Net Pension Expenses Depreciation and Amortization Net Interest Expense EBITDA, excluding pension $ 45.7 $ 51.2 Adjustments / exclusions Gains on Timberland Sales and Transaction Related Costs (0.4) (1.5) Acquisition and Integration Related Costs - - Adjusted EBITDA, excluding pension $ 45.2 $ 49.8 Less: Depreciation and Amortization (17.5) (17.1) Less: Other Income / (Deductions) (0.0) 0.0 Adjusted Operating Income, excluding pension $ 27.7 $ 32.7 Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 27

28 Reconciliation of Non-GAAP Measures Adjusted EBITDA, Excluding Pension Adjusted Operating Income, Excluding Pension In millions /30/2012 LTM Income before Income Taxes $ (22.2) $ 93.9 $ 81.0 $ $ 33.5 $ 50.8 $ 76.3 Net Pension Expenses (17.0) (12.9) (16.1) Depreciation and Amortization Net Interest Expense EBITDA, excluding Pension $ 32.1 $ $ $ $ $ $ Adjustments / exclusions Gains on Timberland Sales and Transaction Related Costs (15.7) (79.0) (18.6) (0.5) (0.4) (3.4) (7.7) Gains from Insurance Recoveries (0.2) Environmental Remediation Debt Redemption Costs Cellulosic Bio-fuel and Alternative Fuel Mixture Credits (105.5) Acquisition and Integration Related Costs Workforce Efficiency Charge Write-off of Concert Indemnification Receivable Foreign Currency Hedge on Acquisition Price Adjusted EBITDA, excluding pension $ 88.4 $ $ $ $ $ $ Less: Depreciation and Amortization (50.0) (56.0) (60.6) (61.3) (65.8) (69.3) (68.7) Less: Other Income / (Deductions) (3.6) (0.3) 0.3 (0.5) (1.4) Adjusted Operating Profit, excluding Pension $ 34.8 $ 55.7 $ 65.1 $ 64.6 $ 85.3 $ 94.2 $ Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 28

29 Reconciliation of Non-GAAP Measures Net Debt and Free Cash Flow Net debt December 31 September 30 In thousands Short term debt $0 $0 Long term debt 227, ,000 Total debt 227, ,000 Less: Cash (38,277) (28,322) Net Debt 188, ,678 Free Cash Flow Nine months ended September 30 In thousands /30/12 TTM Cash from operations $81,136 $48,465 $107,636 Less: Capital expenditures (44,642) (45,027) (64,876) Free cash flow $36,494 $3,438 $42,760 Adjusted Free Cash Flow Nine months ended September 30 In thousands /30/12 TTM Cash from operations $81,136 $48,465 $107,636 Less: Capital expenditures (44,642) (45,027) (64,876) Add back: Composite Fibers Capacity Expansion 0 10,765 10,765 Exclude: CBC/AFM Credits (17,833) 9,387 9,387 Adjusted Free cash flow $18,661 $23,590 $62,912 Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 29